The capital losses and the deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profits will be available against which the Company can utilize the benefits.
In 2012, $0.1 million of previously recognized tax losses were derecognized as a result of changes in estimates of future results from operating activities. In 2011, $5.0 million of previously unrecognized tax losses were recognized as a result of changes in estimates of future results from operating activities.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, credit facility
The fair value of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities at December 31, 2012 approximated their carrying value due to their short term to maturity.
The fair value of the revolving credit facility approximates its carrying value as it bears interest at floating rates and the premium charged is indicative of the Company's current credit spreads.
The Company classified the fair value of its financial instruments at fair value according to the following hierarchy based on the amount of observable inputs used to value the instrument:
-- Level 1 - observable inputs, such as quoted market prices in active markets-- Level 2 - inputs, other that the quoted market prices in active markets, which are observable, either directly or indirectly-- Level 3 - unobservable inputs for the asset or liability in which little or no market data exists, therefore requiring an entity to develop its own assumptions
The fair value of derivative contracts used for risk management as shown in the statement of financial position as at December 31, 2012 is measured using level 2. During the year ended December 31, 2012, there were no transfers between level 1, level 2, and level 3 classified assets and liabilities.
16. FINANCIAL RISK MANAGEMENT
The Company's activities expose it to a variety of financial risks that arise as a result of its exploration, development, production, and financing activities. The Company employs risk management strategies and policies to ensure that any exposure to risk is in compliance with the Company's business objectives and risk tolerance levels. Risk management is ultimately established by the Board of Directors and is implemented by management.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of foreign currency risk, interest rate risk, and other price risk, such as commodity price risk. The objective of market risk management is to manage and control market price exposures within acceptable limits, while maximizing returns. The Company may use financial derivatives or physical delivery sales contracts to manage market risks. All such transactions are conducted within risk management tolerances that are reviewed by the Board of Directors.
Foreign exchange risk
The prices received by the Company for the production of oil, natural gas, and NGLs are primarily determined in reference to US dollars, but are settled with the Company in Canadian dollars. The Company's cash flow from commodity sales will therefore be impacted by fluctuations in foreign exchange rates. Assuming that all other variables remain constant, a $0.01 increase or decrease in the Canadian/US dollar exchange rate would have impacted net loss and comprehensive loss by approximately $0.5 million for the year ended December 31, 2012 (2011 - $0.4 million).